Blockchain Bites: Bitcoin’s Path to $20K, Ethereum’s ‘Unannounced’ Fork and Biden’s Crypto-Friendly Picks

Ethereum’s Infura went down, causing a chain split. The world’s second-largest bank will issue $3 billion in blockchain bonds. President-elect Joe Biden’s transition team features some noted crypto commenters. 

Top shelf

Chain split

Wednesday morning, around 08:00 UTC, Ethereum infrastructure provider Infura disclosed a service outage for its Ethereum mainnet API, related to one of the blockchain’s major clients, Geth. Industry participants began speculating over a possible “chain split,” or a type of unplanned and unannounced hard fork. The issue likely stems from the split between node operators who have and have not upgraded Geth. “Those who haven’t been upgrading their Geth nodes for a while (I presume several months at least) got split with those with new Geth versions,” Nikita Zhavoronkov, lead developer at Blockchair said, adding that his own services were restored after upgrading. As of press time, Infura has identified the root cause and has begun work towards recovery.

Blockchain bonds

The world’s second-largest bank (market cap), China Construction Bank (CCB), will issue $3 billion worth of bonds on a blockchain. These tokenized bonds (offered at the state-owned bank’s Labuan, Malaysia, branch) will be exchangeable for bitcoin and U.S. dollars on the Fusang digital asset exchange. Tokenization reduces the number of financial intermediaries and costs associated with issuance, meaning that CCB can offer the certificates for as little as $100 (rather than the typical $4,000 price tag) and offer yields of 0.75% (compared to the 0.25% industry standard).

Tokenization chill

Despite a DeFi cooldown, the number of tokenized BTC on Ethereum increased 21% since September. There are now well over 150,000 BTC, worth some $2.3 billion, on Ethereum. However, the trend has slowed significantly. Roughly $360 million worth of bitcoins was tokenized in October, compared to the $737 million tokenized in September, according to data from Dune Analytics. Notably, the pace of tokenization still outpaced the rate of mining issuance for the third consecutive month.

Brain trust

President-elect Joe Biden announced his transition team yesterday, a “brain trust” of policy experts featuring some with close ties to the crypto industry. Most notably, former CFTC chairman and noted blockchain commentator Gary Gensler will lead the Biden financial policy transition team, responsible for Federal Reserve and banking and securities regulators review. MIT’s Simon Johnson, who has written about blockchain technology; Georgetown’s Chris Brummer and University of California’s Mehrsa Baradaran, known for their comments on Facebook’s libra project; and one of the “digital dollar’s” architects, Lev Menand, have also been tapped as part of the transition team.

Quick bites

Market intel

Coin consolidation 

Market analysts are largely bullish on bitcoin’s prospects to test all-time highs of $20,000, though many foresee a period of consolidation in the coming weeks and months. CoinDesk market reporter Omkar Godbole writes, “further notable gains look unlikely in the short term, as the cryptocurrency’s 60% rally from $9,800 to $15,900 seen over the past two months looks overstretched, per the technical charts.” A position also taken by Patrick Heusser, senior cryptocurrency trader at Zurich-based Crypto Broker AG, who sees consolidation between $14,000 to $16,000 in the next few weeks. Diminished sell-side liquidy, driven by increased institutional action, could be a factor here, Godbole notes. 

At stake

Privacy coins

Colorado-based cryptocurrency exchange ShapeShift has delisted a roster of privacy coins including zcash (ZEC), monero (XMR) and dash (DASH).

Citing regulatory concerns, Veronica McGregor, ShapeShift’s chief legal officer, told CoinDesk’s Brady Dale that the action was taken to “derisk” the company.

At the moment, it seems like ShapeShift is alone in disabling certain privacy coins. There was no immediate change to regulatory policy that might have incentivized the move – though the general thrust of overriding guidance would suggest that privacy coins are in financial watchdogs’ crosshairs.

Dale spoke with Peter Van Valkenburgh, Coin Center director of research and a zcash Foundation board member, who compared privacy coins to bags of cash – currently the denomination of choice for criminal activity.

The U.S. Financial Crimes Enforcement Network, or FinCEN, “basically says, you have to make sure you are taking reasonable steps from a cost-benefit analysis to stop the proceeds from crime from flowing through your institution,” Van Valkenburgh said.

What defines a reasonable step is still open to interpretation, given the broad mandate of laws like the Bank Secrecy Act. Van Valkenburgh noted that these vague regulations do offer ways for crypto companies to offer privacy coin services, “just as banks deal with cash.”

Notably, monero, the 14th largest cryptocurrency by market cap and the only one of the coins in question that offers privacy by design, is something of a pariah for centralized exchanges. Of the major exchanges, only Kraken offers XMR trading, Decrypt reported.

Blockchain forensic firm CypherTrace was tapped by the Department of Homeland Security to crack monero’s privacy protections, while the IRS has offered a similar contract to Chainalysis and Integra to crack monero, zcash, dash, grin, komodo, verge and horizon.

Offering a peak behind the hood of regulatory conversations, Coinbase CEO Brian Armstrong essentially said this summer that regulators speak softly but carry a big stick.

“A lot of it is behind-the-scenes conversations where [regulators] are kind of saying: ‘We very much don’t think you should do this. And then we have the conversation: ‘Well, are you telling us that you don’t like it, or are you telling us that you are going to sue us if we do it?,’” Armstrong reportedly said.

To be sure, when it comes to financial surveillance U.S. financial regulators have both soft power and money behind them.

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